Boeing to Pay United States Record $615 Million
to Resolve Fraud Allegations

WASHINGTON – Deputy Attorney General Paul J. McNulty announced today that the
United States reached final agreement with The Boeing Company on a record $615
million settlement to resolve criminal and civil allegations that the company
improperly used competitors’ information to procure contracts for launch
services worth billions of dollars from the Air Force and the National
Aeronautics and Space Administration. Assistant Attorney General Peter D.
Keisler, and the U.S. Attorneys for the Central District of California and the
Eastern District of Virginia, Debra Wong Yang and Chuck Rosenberg, joined
Deputy Attorney General McNulty in the announcement.

Boeing has agreed to pay a total of $615 million dollars to resolve the
government’s investigations and claims relating to the company’s hiring of the
former Principal Deputy Assistant Secretary of the Air Force for Acquisition
and Management, Darleen A. Druyun, by its then Chief Financial Officer, Michael
Sears, and its handling of competitors information in connection with the
Evolved Expendable Launch Vehicle (EELV) Program and certain NASA launch
services contracts.

“The American people rightly expect government officials and contractors to
act with integrity,” said Deputy Attorney General Paul J. McNulty. “The
outcome of these investigations sends a clear message to those doing business
with the government: harsh consequences await anyone whose conduct falls short
of the highest legal and ethical standards.”

The $615 million settlement includes a $565 million civil settlement and a $50
million monetary penalty according to a separate criminal agreement. The amount
is a record for government procurement fraud, for the Department of Defense
(DOD), and for NASA.

Under the agreement with the U.S. Attorneys’ Offices, the United States agrees
not to bring criminal charges related to the conduct that is the subject of the
settlement agreement in part because the company is fully cooperating with the
government’s investigation. Boeing has agreed to accept responsibility for the
conduct of its employees in these matters, continue its cooperation with federal
investigators, pay a monetary penalty of $50 million, and maintain an effective
ethics and compliance program, with particular attention to the hiring of
former government officials and the handling of competitor information. The
U.S. Attorneys’ Offices may seek to prosecute Boeing for charges relating to
the Druyun conduct, or to assess a further penalty of up to $10 million, if
during the two year term of the criminal agreement, an executive management
employee of Boeing commits federal crimes as outlined in the agreement, and the
company fails to report the misconduct to the Department of Justice.

The settlement with the Justice Department’s Civil Division provides for
Boeing to pay $565 million in exchange for a complete release from any civil
liability arising from the Druyan matter as well as the Evolved Expendable
Launch Vehicle Program (EELV) and certain NASA launch services contract.

The government’s investigation focused on Boeing’s relationship with the
former Principal Deputy Assistant Secretary of the Air Force for Acquisition
and Management, Darleen A. Druyun. Druyun was the Air Force’s top career
procurement officer before she retired from the Air Force in 2002. In that
position, she wielded influence over billions of dollars in contract awards,
modifications, and settlements. In 2000, Boeing, at Druyun’s request, hired
Druyun’s daughter and future son-in-law. Then in 2002, Boeing’s then Chief
Financial Officer, Michael M. Sears, recruited Druyun for an executive position
with Boeing following her retirement. During this period (2000 - 2002), Druyun
was responsible for dozens of Boeing contracts, as well as for the
controversial $23 billion procurement to lease a fleet of KC-767 aerial
refueling tankers that has since been canceled.

Sears and Druyun both pleaded guilty to violations of the conflict of interest
statutes. In documents filed with the criminal court, Druyun admitted that
Boeing’s favors in hiring her children and in offering her a position
influenced her contracting decisions.

The government’s investigation also focused on the EELV program, with which
the Air Force sought to usher in a new generation of space launch vehicles to
serve the government’s critical satellite needs through 2020. Air Force
strategy called for two sources to reduce the risk of failure and cost through
competition. Those sources ended up being Boeing and Lockheed, with Boeing’s
low pricing leading the Air Force to favor Boeing in awarding it 19 of the
original 28 launch services contracts awarded in October 1998. The United
States alleged that, prior to this award, Boeing obtained more than 22,000
pages of documents from Lockheed Martin, certain of which contained
confidential competition-sensitive or other proprietary information that
related to Lockheed’s EELV program and that some of this information was used
to unfairly assist Boeing in the EELV competition. When this was subsequently
discovered by the Air Force, it sought to “right the wrong” by re-balancing the
contracts, at great expense. Boeing’s conduct resulted in a record 20-month
suspension of three of its business units from government contracting.

NASA also had launch services contracts with Boeing and Lockheed that required
the contractors to compete for missions. The United States alleged that
Boeing’s possession and use of Lockheed’s proprietary information, including
additional documents obtained through different channels than the EELV
documents, plus the unfair advantage the company had gained in the EELV,
enabled Boeing to persuade NASA to award 19 missions, known as the 19 Pack, on
a sole source basis. The United States further alleged that the lack of
competition plus Boeing’s false claims for certain costs, resulted in Boeing
charging NASA much more for the 19 Pack than NASA should have paid.

NASA Inspector General Robert W. Cobb expressed his appreciation for the
“superb efforts of the DOJ, DOD, and NASA team that brought about this historic
settlement. In addition to fulfilling our statutory mandate to protect the
public’s and NASA’s fiscal interests, this settlement also serves as a
testament for holding accountable those who abuse the government’s procurement
system. Indeed, the settlement represents a significant accomplishment in our
continuing fight against fraud, waste, and abuse.”

“Now, the Boeing settlement is behind us,” said Dr. Ron Sega, Under Secretary
of the Air Force. “It wasn’t a proud time in their history and in some ways it
wasn’t a proud time in our history, but Boeing is a competent and capable
contractor and we look forward to a positive working relationship.”

“This settlement sends a clear message that integrity in DOD contracting is
indispensable and that the American public deserves no less than honest
government and aggressive vigilance over the expenditure of the nation's
resources,” said Acting Department of Defense Inspector General Thomas F.
Gimble.

The Druyun investigation was conducted by the U.S. Attorney’s Office for the
Eastern District of Virginia, the Mid-Atlantic Field Office of DCIS (DOD OIG)
and the Air Force Office of Special Investigations. The EELV and 19 Pack
investigations were conducted by the U.S. Attorney’s Office for the Central
District of California, the Air Force’s Space and Missile Systems Center at Los
Angeles Air Force Base, the Western Field Office of the Defense Criminal
Investigative Service (DCIS) within the Defense Department’s Office of the
Inspector General (OIG), the Air Force of Special Investigations, and the NASA
Office of the Inspector General at the Kennedy Space Center. The civil
investigation and negotiations were conducted by the Civil Division of the
Department of Justice, with the assistance of the U.S. Attorneys’ Offices’
civil attorneys and the investigative agencies.